Labour and the Current Economic crisis. Was it really their fault? Explain to me please.

[Tortington]

I do not follow politics nearly as closely as i ought to. I was listening to Ed miliband on radio 2 on thursday and jeremy vine ripped him a new one over the position that we currently find ourselves in and how it's all the labour parties fault having borrowed when the govt were actually collecting more taxes than ever before whilst we were enjoying the good times. His accusation being, that labour couldn't manage money at the height of the good times and had to borrow even more.

Ed's reply was something like - well, in retrospect, we didn't know it was the height of the good times, and that a crash was round the corner - a crash that wasn't the fault of the government, a crash that has affected america and europe.

Yes, he said - Labour did borrow at the height of the good times ( not knowing it was such at the time) becuase they had made a promise to invest in the countries infrastructure - hospitals, transport etc.

So, despite Jezza laying into him, and despite Ed sounding proper posh {which put me off} i thought he answered really well ( apart from starting every sentence with the Tony Blair stock "Let's be clear about this")

So is is labours fault we are in an economic depression or is it the fact that the bankers fucked things up and we have a recession in many countries?

becuase, i can't help but wonder why the tories continue to make us all poor, they are not cultivating economic growth - surely the VAT rise curtails spending and hinders the economy? Its not just the poor who are feeling the pinch. those in the middle are too. people who vote!

this has turned into an essay, but wondered if anyone had any thoughts and whether they could explain

Yes, good post Chil. Its true that during "the good times" the conservatives would have channeled the money into tax cuts rather than investing in the country. So we could arguably be in an even worse position now.

Labour regulated spending to limit the deficit below 3% GDP. This was only breached by the bank bailout in the crisis. The cause of the economic crisis was the bank's sub-prime lending. You could argue that if Labour had regulated the banks more strongly, this would have been less of a problem. However because London was the worlds leading financial centre, we were particularly exposed in the crisis (and also benefited previously).

At the end of the day where both parties have gone wrong (and continue to) is not investing enough in manufacturing.

Whilst Japan, Germany and the USA have moved into the high tech, high value items, we haven't followed. Where do you get the best electronics from? Best cars? Best computers? What are the UK good at making? I can't think of anything?

Services (including financial services) are all well and good but only manufacturing creates real wealth. Unlike countries like Australia & Russia, we don't have loads of natural resources to fall back on. North Sea oil I don't think even produces enough for our use anymore!

And having a HUGE manufacturing sector is why China has gone from a third world country incapable for feeding its own people to the richest in the space of 20-30 years.

The only reason the US are not bankrupt is because China hasn't let them yet. No-one would be around to buy their widgets. That's why China's going around buying as many govt bonds from western countries as possible.

We'll wake up one day and we'll all be owned by the chinese.

"Labour regulated spending to limit the deficit below 3% GDP".

This is the structural deficit. The spend that is above our income - when tax take is at it's highest.

Labour just didn't realise we were at the top of a cycle.

i'm still here and still reading with interest.

i have no comment though as i really don't know what to think.

I agree with Chil and Edam's synopsis' (or whatever the plural is for that)

I also would say that I don't think any of us have learnt from the last crisis and this government are running a huge risk with their policies towards the financial sector. We are surviving on the predictions from economists about growth etc. yet we know that these predictions are phony. The economics establishment very probably are aware of the use the wrong tools to predict the economic status and the complete fiasco in the variety of theories that are used, but
they still keep pushing the warnings under the rug, or hiding the responses So the banking system remains the same - individuals within it have an incentive to hide tail risks as a safe strategy to their collect bonuses.

So despite the blame that might be heaped on Labour for not seeing what is round the corner with the banking system and the excessive borrowing within the system at all levels, this government are in great danger of making the more fatal error of not learning from the past and letting the banks continue on their merry way, with no expansion in manufacturing and so on.

The blaming of labour might very well come back to bite them on the arse, because if the banking crisis rears it's ugly head again which is altogether possible, then that really is going to be backtracking of the biggest type.

"What are the UK good at making? I can't think of anything?"

According to this, "Around 60 per cent of manufacturing output is exported overseas. But the trade deficit in finished and semi-finished manufactured goods has grown steadily wider over recent years. However the UK still runs trade surpluses in areas such as petrochemicals, aerospace, alcoholic beverages, machine tools and pharmaceuticals. There are areas of manufacturing where UK manufacturing retains a comparative advantage in the global economy"

The Telegraph posted something this morning which sounds promising: "UK manufacturing activity last month grew at its fastest pace since 1994 as exports drove new orders"

LadyBlahBlah - Which coalition policies towards the financial sector do you see as risky?

jack - they have left the banks to do what they do and did, which arguably caused the crisis, and certainly caused a near collapse in the banking sector and a huge bailout by the tax payer.

The products they were selling and making money from have not substantially changed. Therefore the coalition are putting themselves at risk to the exact same problems that Labour did.

Custardo - I'd also recommend The Full Fact Guide to the Economy. It's relatively easy to understand and it's very impartial (non-political).

LadyBlahBlah - I agree the banking industry needs significant structural change. But that's not an easy ask. Have you read Mevyn King's Speech on this in given in October? It certainly had me reaching for the aspirin.

This is a very interesting thread.

Lots of well-thought out posts and no mud-slinging (although no-one is really blameless either, apart from the poor old Lib Dems who never held power and are now trying to help clear up the mess, although there isn't much to say they would have handled it better).

If you don't need to spend or borrow for growth what on earth are all these s.m.e.s harping on about?

Spending for growth is exactly what Gordon Brown promised when he adopted the fiscal Golden Rule That says that, over an economic cycle the government will borrow only to invest and not to fund current spending. There are other principles of stability (remember the famous 'prudence'?) which were also abandoned by Brown as Chancellor and PM. Not least, the size of the public sector.

So, again, whilst Labour couldn't have anticipated the magnitude of the crash when it came, in ignoring their own 'Golden Rule' strategy, it meant that the correction - whoever took it on - was always going to be unpleasant.

I agree we have to borrow to spend to grow. Just look at the slump in construction caused by the drop in public contracts. We are throwing the baby out with the bath water. Neither government has shown any strength against tax evasion or avoidance, globalisation will ruin this country (and many others) not just our high streets. There wouldn't have been anything like the need for such drastic cuts if big companies paid their fair share and tax avoidance wasn't such a feature of every conglomerate. I didn't realise just what a tax haven the city of London is for example. With the press of a button money is shunted around the world and removed from UK balance sheets. The gap between rich and poor will continue to grow and no government in the world will do anything to stand up to the powerful finance machine which controls us all. Lobbyists and big donations to political parties will water down all policies. No political party has the cahones to do anything drastic. We all should take responsibility for the financial crisis, stop all the mud slinging. We as individuals might have bought into the property boom, maxied out on credit cards or simply not holding the retailers and service companies to account when we give them our custom. Big society means taking responsibilty and getting our MPs to pull their fingers out to deal with the really big issues.

Borrowing to spend is fine but borrowing on future income is risky, especially if you selfcertify. I like the mortgage analogy.

Labour effectively took out a 100% mortgage on the country (the Conservatives took out mortgages too but not as big) but because they self-certified and the predictions were wrong and a country can't be repossessed we have to suddenly save a lot. That was coming no matter who did the borrowing, the irresponsible thing was the amount that was borrowed and the lack of foresight/contingency planning for not being able to meet those repayments, like taking a 100% mortgage when you're self employed but have no clients. The lenders were perhaps at fault as well but noone really regulates international borrowing.

There's also the argument that our borrowing wasn't really an investment because it didn't/doesn't generate a sufficient return so the investments were unwise.

Basically everything the previous government did was entirely logical and justifiable except it was all built on sand and either they didn't realise or they ignored it. It's not that what they did was intrinsically bad or wrong, just badly/wrongly managed.

You've hit the nail on the head. Regulation. It seems no Government or lender can behave responsibly without international regulation. Lenders lent recklessly whether to individuals, cOmpanies or governments. Banks say there Was no regulation in place to make them lend responsibly or morally. These financial masters of the universe didnt realise the harm they were doing. Yeah right! We're relying on the tories & libdems to reign them in massively. Labour like most of us borrowed when times were good. Some poor souls went all the way into sub-prime and so the global crisis began. Stop borrowing, stay within your means and buy British. That's from companies who pay the correct tax in the UK. So, no I don't buy the line it was Labour's fault - what the whole global crisis? I do believe the cure might before dangerous than the disease though.

That's quite depressing though - the idea that noone can be trusted, individually or collectively, to borrow sensibly. It's a bit of a chicken/egg question as to whether the national borrowing encouraged the individual or vice versa.

Either way we somehow have to get out of it and we can't borrow any more, individually or collectively so nationally there will be cuts and extra income streams, just like many individual households. If we cured the problem by borrowing we'd lose our triple A rating and completely scupper future generations. Who screwed who in the past doesn't really matter.

Agreed but triple A ratings are decided by the very people who failed so astonishingly to see the crisis coming. They dont know their 's from their elbows. The very idea we should let the credit ratings agencies decide our worth is the scariest thing of all. They were the ones giving sub-prime securities triple ratings. They were far more to blame than Labour for the global banking crisis and now we're hanging on their every word scared of a downgrade. We're doomed!!!

My point is that we have all misguidedly had too much trust in banks and financial institutions. They've shafted us. They're the experts, they knew exactly what they were doing. They continue to act in the interests of themselves alone. Really radical reform is required of the whole financial industry globally. Banks, lenders, auditors, insurance companies, lawyers involved in tax avoidance,credit ratings agencies etc. Will it happen? No way. We can blame successive governments, regulators, local councils etc but until the majority
actually demand change, it won't happen. A few people are making too much money and are too powerful. Governments are their puppets and the odd little person losing their job, home, partner or taking their life is inconsequential. These people have no morals. They are not part of a big society. They have their bonuses and their tax havens. Many so called "respectable" people work for these companies. They need to start thinking about the real worth of their contribution to humanity.

There's always a dominant industry. Years ago the nationalised manufacturing industries cost billions on an annual basis & could bring the country to its knees and have governments begging for mercy by lifting a little finger. When Britain was 'the sick man of Europe' the nationalised industries were in the firing line. Now we have banks that - it turns out - provided a disproportionate wedge of the national resources. Now the banks are the bete noire of the corporate world.

The job of government is to try to get some kind of balance between public/private sector and the spread of different industries, not have all the eggs in one precarious basket, but also play through a few 'what if' scenarios about what happens if/when the good times stop rolling. When Brown claimed Britain was 'well-placed' to survive recession he was very wide of the mark.

Responsible for the crash. No? Remiss in not reining in the financial services industry earlier? Possibly. Responsible for greedily sucking the golden goose dry & ignoring the possibility of a downturn? Absolutely.

Privatised rail industry, privatised hospital cleaning, privatised utility companies, prison security are all Massive failures for the consumer. Selling off all our council houses. A few people making a lot of money from these plundered industries and assets is not the best solution for the community as a whole. The Tories wanted faster de-regulation of the banking Industy than labour instigated which is why I fear they will not be tough now. Their donors have too much to lose. Two members of my family are on long term medication which is now delivered and managed by the NHS through BUPA. We don't have private health insurance (we couldn't get it if we wanted it). I see every week how BUPA ramp up their profits: oversupplying drugs, unecessary deliveries, too much equipment delivered. This is small scale but multiplied across the system, private acquisitions will cost us more as individuals and society, both financially and levels of service. This route entails carving up the golden goose and giving it all out to your mates. Brown might have borrowed in
an attempt to improve the lives of many. Cameron is
cutting and carving too much too fast without proper
planning. As a nation we will be left with no assets
only a few wealthy tax dodgers.